EIU predicts 2009 GDP decline of 9%

PESSIMISTIC The forecast was the second-worst prediction for Taiwan’s economy, just after a forecast of an 11 percent contraction in GDP by a Hong Kong think tank

By Kevin Chen / STAFF REPORTE

A senior economist for the Economist Intelligence Unit (EIU) said on Saturday that Taiwan’s economy would contract by 9 percent this year, a far worse estimate than the government’s forecast last week. The new estimate is a sharp downward revision from a 2.9 percent decline the research unit predicted in December.

In an interview with the Central News Agency (CNA), Kil Dosanjh said he had on Feb. 14 forecast a 6.5 percent contraction for Taiwan’s GDP growth rate this year until the government adjusted downward its estimates on Thursday, when it reported the economy shrank a record 8.36 percent year-on-year in the fourth quarter and would likely contract by 2.97 percent this year.

Dosanjh told the state-run news agency that Taiwan’s unemployment rate would surge to 10 percent by the end of the year, with more than 1 million people out of work, making this year the worst in Taiwan’s history.

On Thursday, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said the economy would continue contracting in the first three quarters of the year, before growing by an expected 4.5 percent year-on-year in the fourth quarter.

But the EIU economist predicted that an improvement in the economy wouldn’t come until the second half of next year. He expects Taiwan’s economy to see a full return to the level of last year by 2013, CNA reported.

Dosanjh did not reply to an e-mail sent to his office yesterday to confirm the CNA report. If his prediction were confirmed, that would make the EIU’s 9 percent decline forecast the second-worst estimate among all foreign and local institutions’ and only behind CLSA Asia-Pacific Markets’ prediction, which on Feb. 4 said Taiwan’s economy would shrink by 11 percent this year on falling private demand and exports.

Still, the EIU, a research unit of the Economist, already forecast a high possibility of contraction for Taiwan’s GDP growth in its latest Country Forecast report, which will be released this week.

In its latest global outlook report, a copy of which the Taipei Times received on Saturday, the EIU said Taiwan’s economy would contract by 6 percent to 7 percent this year, “with a high risk of an even sharper decline.”

This figure is far lower than an average 1.7 percent growth EIU forecast for Asia and Australia (excluding Japan).

In the most pessimistic assessment of Taiwan’s economy yet, the EIU said Taiwan, along with its close rival South Korea, would be severely hit by the weakening economy of the US and experience a greater adverse impact from the slowdown in China.

“The importance of the export sector to the domestic economy means that the impact will be particularly severe,” the EIU report said.

Taiwan’s exports dropped more than 40 percent year-on-year for two consecutive months in December and last month, and the DGBAS said on Wednesday it expected exports to post an annual decline of 20.1 percent this year, the nation’s second-highest decline ever.

“In the near term, this [weakening exports] will by far outweigh the positive impact on business sentiment from a substantial improvement in relations with the Chinese mainland, following the installation in May 2008 of Ma Ying-jeou (馬英九) as president,” the EIU said.

The EIU report predicted that the US economy would contract by 2.5 percent this year, with GDP contractions likely to be 2.9 percent in euro zone countries and 5.5 percent in Japan.